Mortgage Renewals and The Bank of Canada’s Policy Decision
The Bank of Canada recently decided to maintain its target rate at 5.00%. This decision has caught the attention of both the financial industry and Canadian households. Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers provided insights into the rationale behind this move during their testimony before the Standing Senate Committee on Banking, Commerce, and the Economy.
Mortgage Renewals Challenge
One of the significant factors influencing the Bank of Canada’s decision is the looming wave of mortgage renewals at higher interest rates. Analysts estimate that approximately $251 billion in mortgages will come up for renewal in 2024, with and even larger figure of $352 billion in 2025. Furthermore, 40% of mortgage-holders have already experienced rate hikes during the renewal process.
A Balancing Act
Governor Macklem pointed out the potential risks associated with these mortgage renewals. However, he also acknowledged that some households have been able to manage the higher payments due to excess savings accumulated during the pandemic, higher wages, and increased home equity values. The challenge lies in striking a balance between these potential risks and the resilience of Canadian households.
Testimony Highlights
Macklem and Rogers also addressed various questions from the Senate committee, such as the Bank’s independence, the impact of the carbon tax on inflation, investor purchases of Canadian real estate, and the possibility of a technical recession. Their responses shed light on how these factors influence the Bank’s monetary policy decisions.
The Neutral Rate Question
In response to concerns about Canada’s neutral rate potentially exceeding the 2% target, Macklem emphasized the difficulty of quantifying the neutral rate. He stressed that the Bank’s framework is well-designed, and other issues take precedence in his concerns.
The Bank of Canada’s decision to keep its target rate unchanged is closely tied to the challenge of rising mortgage renewals at higher rates. While potential risks exist, Canadian households have shown resilience in managing their finances. The Bank continues to balance these considerations while focusing on its mandate of maintaining price stability and supporting economic growth.
If you have questions about Mortgage Renewals, Contact Us, Client First Mortgage Solutions. We are here to answer all of your mortgage questions.
Canadian Mortgage Trends – November 1, 2023
